1. Bureau of Accounts – Field Advisor
Department of Revenue Division of Local Services MUNICIPAL BUDGET DEVELOPMENT SEMINAR
HARDWICK
September 22, 2016
Terry Williams
Bureau of Accounts – Field Advisor

2. BUDGET = a plan expressed in monetary terms covering a specific time period A GOVERNMENTAL BUDGET CONSISTS OF THREE ELEMENTS
Estimate of Revenue - including sources
Statement of Expenses – how much & where to allocate
Specific Period of Time – usually a fiscal year (July 1st - June 30th)

3. The purposes of a “Municipal Budget” in the Commonwealth of Massachusetts:
It must more than simply allocate financial resources to competing programs & services.
It should help to establish priorities (e.g. operating vs. capital; municipal vs. school)
It should articulate goals, objectives, and measurable indicators of service delivery.
It must comply with the Proposition 2-1/2
statute (MGL – Ch59 s21C).

4. The effect of Proposition 2-1/2 on the Municipal Budget Process:
Formerly Expenditure Driven – Now Revenue Driven
Budget must be in Balance –
e.g. Revenue = Expenditures
Tax Levy may not exceed the adjusted levy limit (a.k.a. - Maximum Allowable Levy)

5. What are some of the Tenets to Successful Creation of an Annual Municipal Budget ?
Demand for services generally outstrips available resources – so all possible resources must be identified and maximized.
Anticipated revenues for an upcoming fiscal year must first be forecast to establish the framework prior to preparation of a municipal budget – the expenditure side.
While services provided by Massachusetts communities vary widely, cities and towns have primarily only four major revenue components from which to provide for this budget.

6. Property Tax Levy - see Prop 2-1/2 Levy Limit Sheet
Revenue Sources Available to Massachusetts Municipal Governments for the General Fund Annual Budget
Property Tax Levy - see Prop 2-1/2 Levy Limit Sheet
State Aid – Cherry Sheets
Estimated Local Receipts - Page 3 of Tax Recap
Other Available Funds – by Municipal Vote
Certified Free Cash
Stabilization Funds
Overlay Surplus
Budget Surpluses

7. Typical Massachusetts Percentages: Sources of Revenue
State
Aid
20.66%
Tax Levy
57.54%
Local
Receipts
17.88%
All Other
3.91%

9. The Property Tax
Is the largest source of local government revenue - averages over 50%.
Wealthier communities typically have higher percentages of their budgets supported by property taxes due to lower levels of state aid.
Conversely, poorer communities typically have lower percentages of their budgets supported by property taxes due to greater levels of state aid.

10. The Property Tax (cont.)
Communities may generally levy a property tax up to their Prop 2-1/2 Levy Limit
The Levy Limit is a historical figure that increases each year by 2.5% plus new growth (new construction, subdivisions, etc)
It may also be increased by Overrides, Debt Exclusions and Capital Outlay Exclusions
The difference between the Maximum Allowable Levy Limit and the actual Levy is called Excess Levy Capacity

11. Levy Limit Form $ 3,439,606 FY 2015 Levy Limit $ 3,569,620 FY 2016
HARDWICK
Levy Limit Form
$ 3,439,606
FY 2015
Levy Limit
$ 3,569,620
FY 2016
Maximum Allowable
Levy

13. State Aid – Cherry Sheet
Chapter 70 and Unrestricted General Governmental Aid (UGGA) are the two largest forms of unrestricted state aid
For FY 2017 Ch 70 is $4.6 billion and UGGA is $1.022 billion in addition to the remaining accounts of $337 million represent 15% of this year’s total state budget of $39 billion
State Aid represents approximately twenty percent of all revenues for municipalities!

14. Cherry Sheet Revenues

15. Cherry Sheet Charges

16. Estimated Local Receipts
These are locally generated revenues other than real and personal property taxes
Examples include Motor Vehicle Excise, Meals and Room Excises, Penalties, Fees, Licenses & Permits, Fines, Charges for Service, Departmental Revenue and Investment Income
These estimates are shown on the Tax Recap Sheet on “Page 3”

17. Estimated Local Receipts
Projections can be based on the previous year’s actual receipts
Larger increases above simple inflation are allowed if the reason can be documented
Some of these local revenues cover the direct cost of what they support – user fees
DLS advises that the amounts contained on “Page 3” be estimated conservatively
Conservative estimates may result in increased future certified Free Cash

18. * HARDWICK
PAGE 3 *
Estimated Receipts
FY16, $ 780,374.54

20. Free Cash Definition
Unrestricted and available funds for appropriation by the legislative body (some times known as “budgetary fund balance”)
Certified as of July 1 based on the June 30th balance sheet which reflects results from the prior year
Cannot be appropriated until it is certified by the Director of Accounts as per MGL 59:23
Any remaining balance expires on June 30th
Should be considered a non-recurring revenue

21. The Importance of Free Cash
An available fund which can be appropriated for any legal municipal purpose
Depletion of Free Cash, particularly to balance annual budgets, endangers future spending plans if it is not regenerated
Drawdown on reserves may also cause a negative impact on the communities credit rating
However retention of ample Free Cash balance provides municipalities with financial flexibility and confidence

22. Generating Free Cash Free cash certified > free cash appropriated
Actual revenues > budgeted revenues
Budgeted expenditures > actual expenditures and encumbrances
Outstanding property taxes prior years > outstanding property taxes current year

23. Basic Free Cash Formula
+ Undesignated FB or Surplus Revenue
- Accounts Receivables
- Illegal Deficits
+ Deferred Revenues
= FREE CASH

26. Stabilization Funds – MGL 40:5B
A Stabilization “Rainy Day” Fund is a special reserve fund into which monies may be appropriated and reserved for later appropriation
Can be utilized for any lawful purpose
Stabilization Fund balances carry forward from one fiscal year to another
Interest earned on investment of the balance in this fund remains with the fund

28. Overlay Surplus
Overlay (Allowance for Abatements and Exemptions) is an annual amount raised to cover anticipated abatements and exemptions
As abatements and exemptions are granted by the Assessors the account is charged and the balance is reduced
At the appropriate time the Assessors can determine that there is surplus available and declare Overlay Surplus which is an available fund to be voted by town meeting

29. Total Financial Flexibility Factor

30. The Annual Budget Process
WHO AND HOW

31. Budget Participants:
Select Board/Town Administrator – Responsible for overall Budget Process
Finance/Advisory Committee – Advises and Is the Fiscal Watchdog!
Town Accountant – Maintains Financial Records
Treasurer – Responsible for Vendor & Payroll Warrants, Debt Management, Pensions, Insurances
Tax Collector – Collect Taxes and Other Fees
Assessors – Proper Valuation of Real and Personal Property forms the basis of Fair Taxation
Department Heads – Important Member of Budget Process as they are on the front lines everyday

32. Steps in the Budget Process:
Budget Calendar – Responsibilities & Due Dates
Preliminary Projections Revenue and Non-Operating Expenses
Budget Guidelines – Parameters & Framework
Budget Instructions c/w Standardized Forms & Procedures
Budget Presentation Format – Form & Content of Budget Document
Comprehensive Budget Document – Incorporating Operating, Capital & Off-Budget Items
Schedule Review – Public Hearings and Comment
Finance/Advisory Committee Recommendations – for presentation to Annual Town Meeting

33. Important Budget components to help identify the needs of the Municipality and clarify their costs
Select Board should first issue Budget Guidelines for annual Salary & Expense accounts .
Insurance, Retirement, Utilities, Debt, and other Fixed Costs should be obtained or estimated.
Department Heads should submit line item budget requests for their department with justifications.
Short Term Capital needs should be identified – Is their a Long Term Capital Plan?
Review Cherry Sheet Charges, Overlay and other off-budget items such as deficits to be raised.

34. Finally a Comprehensive Budget Incorporating all Revenue Estimates and Operating and Capital Expenses is Constructed
QUESTION ? ? - Is the Budget in balance and under the community’s Prop 2-1/2 Levy Limit ?
YES – Assuming estimated Tax Levy/Rate is acceptable for this proposal it may be brought before Town Meeting – the Legislative Body
NO – Budget must be balanced prior to the Tax Rate being certified
This can be accomplished by :
Reducing the Budget
Increasing the use of Available Funds
Certified Free Cash
Stabilization Funds
Overlay Surplus
OR Passing a Prop 2-1/2 Override !

35. BUDGET CYCLE JULY 1ST Create a timeline
Present balanced budget to town meeting/city council
Develop Revenue projections
JULY 1ST
Issue budget guidelines
Towns: B.O.S. & Finance Comm approval
Receive requests & develop working budget
Review requests & Revenue projections

36. Any Additional Questions? Thank You !